If not the US dollar, what are the main major drivers of current account imbalances today?
- Unsustainable US federal budget outlook
- China's failure to shift its economy further toward a non-deflationary, consumption-driven growth model
by Maury Obstfeld
In many ways it stems back to a misunderstanding of the Bretton Woods era Triffen dilemma. It never said the gold/dollar standard required US trade deficits. It said for global growth, US needed to let the supply of dollars around the world rise and that imperiled the dollar/gold peg.
Well argued and important piece by Maury Obstfeld pointing out that despite many wrong arguments to the contrary, the role of the dollar is not the cause of the U.S. current account deficit. Others wanting to hold dollars does not require a trade deficit. It never has.
The exception is countries that buy more from China than they sell. In those cases, they may accept RMB, and just turn around and buy good s from China. But that is very different from the current role of the dollar.
Nice explanation of why the dollar’s role is difficult to overturn by @paulblustein.bsky.social Whenever I’m asked if a country is going to start pricing a commodity in RMB. I ask “what are they going to do with the RMB?” Lack of deep financial market makes it impractical.
One of my favorite parts is the quotes from Reagan’s CEA Chair testifying to Congress that a trade deficit is not a balance of payments deficit under section 122. I’ve taught students for years that a trade deficit and balance of payments deficit are distinct. The court should see this clearly.
Very happy to be part of this and thanks to @stanveuger.bsky.social for organizing. Highly recommend people read it. It is in plain English and makes abundantly clear the U.S. does not have a balance of payments deficit or international payments problem and the section 122 tariffs should be tossed.
I keep seeing articles saying the President may choose to withdraw from NATO. Shouldn’t they mention that the 2024 NDAA included a provision that no President can withdraw from NATO without the assent from Congress? Curious if lawyers or political scientists think that provision does not hold.
This was both predictable and incredibly frustrating to those who believe in helping Ukraine defend itself from an illegal invasion.
We already know the winner in the war with Iran and that's Russia. The closure of the Straits of Hormuz has swung Russian crude from pariah to prized commodity. Urals oil price is the highest since right after the Ukraine invasion. Putin is loving this...
robinjbrooks.substack.com/p/markets-in...
Spike in oil and natural gas prices is a windfall…for Russia
Another example of how the actions of this administration may be driving allies away from us economically over time. It doesn’t cause a big economic shock today, but it erodes the position of US firms overseas over time.
Nice article from @sdonnan.bsky.social walking through the question of whether the conditions for use of tariffs under section 122 are met.
We have a floating exchange rate and an open financial account. It would be unusual to have a fundamental balance of payments problem in that setting. You can say you don’t like the trade deficit or negative NIIP, but that’s not a “international payments problem”.
Question of the day seems to be “does the U.S. have a fundamental international payments problem?” Answer is easy “no”. We have enough money flowing into the country via the financial account to fund the deficit in our current account. This really isn’t hard.
Has any country said yet what this means for deals they struck under threat of emergency tariffs?
This is good news. But there are many tools Trump can use where Congress has delegated tariff authority. The challenge for him is most of them cannot be jerked up and down and threatened on a whim. This might eliminate or at least slow some of the ad hoc threats.
Appreciate seeing your insights / reporting on Bluesky.
Q4/Q4 core PCE inflation was 2.9% last year (vs. 3.0% in 2024).
Trump's statement on the GDP report includes a parenthetical jab at the Fed chair, but there's not much of anything in this report that tells the Fed it needs to cut anytime soon.
This is for the econ stat nerds. GDP in 2025 grew at 2.2%. Normally, we’d ask, “is that annual average (the average in 2025 vs average in 2024) or q4q4 (the level in 2025:q4 vs 2024 q4). The latter is a better guide of what happened during 2025. This year, they were the same. So no need to argue
a member of Congress should introduce a bill that bans any federal agency or any entity receiving federal funds from naming anything after a sitting president. Make Trump veto that. Or make his supporters go on record supporting the cult of personality.
Fair, but I think if we are worried about market concentration, wealth concentration, or product safety, we’re better off dealing with directly via tax/regulatory/antitrust policy. Having others distance from our companies bc they don’t trust our government doesn’t seem good.
I keep pointing this out to people, but I don’t think it is getting enough traction. By making the U.S. an untrustworthy ally, Trump is making US firms risky partners. Even current allies are looking for ways to disentangle from U.S. tech. A bad long run outcome for the U.S.
Who could have predicted this? (Where “this” is the idea that indiscriminate tariffs bouncing up and down would raise input costs and uncertainty and hurt manufacturing). Oh right. Everyone. Everyone predicted this.
When I worked in the WH, lawyers asked me to resign as a Deacon at my church bc the Board of Deacons had fiduciary responsibility, & I couldn’t be a political appointee at the WH and have that for anything but the U.S. Some see the corruption & think “everyone does this”. No. This is awful & new.
Previously I said I thought the Board of Peace was the best example for @abenewman.bsky.social and goddard’s neoroyalism theory. But as this thread makes clear, we’re witnessing wholesale rewriting of national security policy away from Nation’s interest to Trump/famil/cronies.
I wrote this yesterday about the hero city of Minneapolis
www.youtube.com/watch?v=IKOW...
Occupation of a city. Killing innocent people. Lying about the killing. I’ve never been more ashamed of my government. I spent 6 years in govt. 4 in politically appointed roles. If this had happened then, I’d have resigned. Anyone political in this administration there Monday is morally culpable.
Occupation of a city. Killing innocent people. Lying about the killing. I’ve never been more ashamed of my government. I spent 6 years in govt. 4 in politically appointed roles. If this had happened then, I’d have resigned. Anyone political in this administration there Monday is morally culpable.
I’ve found @abenewman.bsky.social ‘s neoroyalist frame very useful for thinking about Trump’s actions. I’m not sure anything fits the model better than the Board of peace. Not about US national interest at all. Purely for Trump and his family/cronies.